1. Eastern Company manufactures special electrical equipment and p rts. Eastern uses stand d
costs, with separate standards established for each product. A special transformer is manufac
tured in the Transformer Department. Production volume is measured by direct labor hours in
this department, and a flexible budget system is used to plan and control department overhead.
Standard costs for the special transformer are determined annually in September for the coming
year. The standard cost of a transformer for 19×7 was $67.00:
|
Direct materials: |
|
|
Iron |
5 sheets @ $2.00 = $10.00 |
|
Copper |
3 spools @ $3.00 = 9.00 |
|
Direct labor |
4 hours @ $,7.00 = 28.00 |
|
Variable overhead |
4 hours @ $3,00 = 12.00 |
|
Fixed overhead |
4 hours @ $12.00 = 8.00 |
|
Total |
$67.00 |
Overhead rates were based on normal and expected monthly labor hours for 19×7, both of which
were 4,000 direct labor hours. Practical capacity for this department is 5,000 direct labor hours per
month. Variable overhead costs are expected to vary with the number of direct labor hours actually used.
During October 19×7, 800 transformers were produced. This was below expectations because a
work stoppage occurred during contract negotiations with the labor force. Once the contract was
settled, the department scheduled overtime in an attempt to catch up to expected production levels.
Actual costs incurred in October 19×7 were as follows:
|
Direct materials: |
Purchased |
Used |
|
Iron |
5,000 sheets @ $2.00 per sheet |
3,900 sheets |
|
Copper |
2,200 spools @ $3.10 |
2,600 spools |
|
Direct labor: |
||
|
Regular time |
2,000 hours @ $7.00 |
|
|
1,400 hours @ $7.20 |
||
|
Overtime |
600 of the 1,400 hours were subject to overtime premium. The total overtime premium of $2,160 is included in variable overhead in accordance with corporate accounting practices. |
|
|
Variable overhead |
$10,000 |
|
|
Fixed overhead |
$ 8,800 |
Prepare a complete analysis of all production variances. Use a four way analysis for overhead.
Materials price variances are isolated at the time of purchase.
(CMA, adapted)